The last time the United States went to war with Iraq, the economy plunged into a recession. Should the US fight a second war with Iraq, would that history repeat itself?

It depends on how long the war would last, economists say, and how much the US commits to reconstruction efforts.

A rout of Saddam Hussein's forces, followed by a minimal peacekeeping effort, would likely improve the US economy. The war-or-peace uncertainty weighing on markets and oil prices would be lifted.

But if weapons of mass destruction are deployed or oil fields damaged, sky-rocketing oil prices and investor jitters could hinder any economic recovery for several years.

"You'll know in 10 days whether it will be one of these routs, or whether there [are] nasty things going on," says Yale economist William Nordhaus, who recently published a study on the costs of war. Until then, he cautions, the economic impact is "fundamentally unpredictable."

While the fog of war confounds economic predictions, the trend since World War II has been toward cheaper conflicts. War costs as a percentage of GDP have been falling dramatically since World War II, according to Mr. Nordhaus.

But that trend hasn't necessarily been a boon for the economy. Rather, the declining cost of war has accentuated the role of oil and investor psychology in how the US economy reacts to war.

The first US war on Iraq shattered a long-standing truism that American wars brought economic booms spurred by government spending, says Nordhaus. Any benefit from increased military spending was outweighed by high oil prices and depressed consumer confidence in the wake of Iraq's unexpected invasion of Kuwait.

Unlike Gulf War I, there have been no big shocks like the Kuwait invasion, just a slow march toward war. The possibility of a new war has already slowed new investment and inflated oil prices.

"The atmosphere of lack of decision is holding up a lot of investment decisions," says Ariel Cohen, an economist at the conservative Heritage Foundation. A quick victory would spur wary Wall Street investors and discount the so-called war premium, says Mr. Cohen.

But if Saddam Hussein succeeds in making the war ugly, the economic picture isn't so rosy.

In order to help economists envision the full range of military scenarios, military analyst Anthony Cordesman with The Center for Strategic and International Studies (CSIS) in Washington outlined in late November three possible courses for the war.

Mr. Cordesman figured that the most likely scenario was the benign case, where the regime crumbles with minimal urban warfare, weapons of mass destruction (WMD) are not used, and Saudi Arabia helps stabilize oil production. An intermediate scenario that's almost as likely according to Cordesman, would see stiffer Iraqi resistance and little help from allies.

Both these scenarios would result in a mild spike in oil prices during the first quarter of the war, estimated a CSIS panel of economists. Neither scenario would push the economy back into recession, however.

But Cordesman figures there is a chance - 10 percent or less - that the war will take a significant turn for the worse. Damage to oil fields, high casualties, or effective use of WMD would send the price of oil surging to $80 per barrel, according to CSIS economists.

Motorists would pay $3 per gallon at the pump. Further, it would take two years for the price of oil to return to pre-war levels.

High oil prices mean consumers and businesses around the world pay more for transportation and heat.

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